WINNING PROPOSALS AND PRICING/COST STRATEGIES:

A Guide for the Federal Contractor

Michael A. Hordell

Charles L. Wilkins

WINNC

Winning Proposals and Pricing/Cost Strategies: A Guide for the Federal Contractor v

Table of ContentsIntroduction ............................................................................................................................................................i

About this Guide ..................................................................................................................................................iii

Chapter 1 How the Government Does Business and Why

Why do business with the Federal Government? ...............................................................................................1-1

Monopsony and the Acquisition Process ...........................................................................................................1-2

Overview of Procurement Techniques ...............................................................................................................1-3

Sealed bidding .............................................................................................................................................1-3

Negotiated contracts ..............................................................................................................................1-4

Types of Contracts ..............................................................................................................................................1-5

Fixed-Price — FAR Subpart 16.2. ..............................................................................................................1-5

Firm-Fixed-Price (FFP) ..........................................................................................................................1-5

Firm-Fixed-Price with Economic Price Adjustment (FFP w/EPA) ........................................................1-6

Fixed-Price Redeterminable (FPR) ........................................................................................................1-6

Fixed-Price Incentive (FPI) ....................................................................................................................1-6

Fixed-Price Award Fee (FPAF) ..............................................................................................................1-7

Accounting implications ........................................................................................................................1-7

Cost Reimbursement — FAR Subpart 16.3 ................................................................................................1-7

Cost-Plus-Fixed-Fee (CPFF) ..................................................................................................................1-7

Cost-Plus-Incentive-Fee (CPIF). ............................................................................................................1-8

Cost-Plus-Award-Fee (CPAF) ................................................................................................................1-8

Cost Type................................................................................................................................................1-8

Cost Sharing ...........................................................................................................................................1-8

Contractual instruments from the financial perspective ..............................................................................1-8

Understanding contract types in applying the magic circle .................................................................1-10

Accounting implications of an effective cost collection system .........................................................1-13

Financial and Cost Rules — Guidance in Federal Procurement ......................................................................1-14

Public laws ................................................................................................................................................1-14

The Office of Federal Procurement Policy (OFPP) Act .......................................................................1-15

The Competition in Contracting Act (CICA) .......................................................................................1-15

The Truth in Negotiations Act (TINA).................................................................................................1-15

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The Contract Disputes Act (CDA) .......................................................................................................1-15

The Federal Acquisition Streamlining Act of 1994 (FASA) ................................................................1-16

The Federal Acquisition Reform Act of 1996 (FARA) ........................................................................1-17

Other laws ............................................................................................................................................1-17

Federal Acquisition Regulation (FAR) .....................................................................................................1-18

Agency Supplemental Regulations ...........................................................................................................1-19

Cost Accounting Standards (CAS) ............................................................................................................1-20

The FAR cost principles .......................................................................................................................1-21

Using the magic circle to describe CAS ..............................................................................................1-27

What Are General and Administrative (G&A) Costs? ..............................................................................1-28

Generally Accepted Accounting Principles (GAAP) ................................................................................1-29

FAR Cost Principles — Part 31 ................................................................................................................1-30

Generally Accepted Auditing Standards (GAAS) .....................................................................................1-30

Understanding the significance of cost rules and issues in proposal development ..............................1-30

Parameters for using the magic circle .............................................................................................1-31

Understanding the magic circle .......................................................................................................1-35

Intermediate or re-allocable cost pool .............................................................................................1-39

Overhead cost pools — the retroactive effect of rates ....................................................................1-41

Allowable versus unallowable cost .................................................................................................1-44

General and administrative cost pools.............................................................................................1-48

Independent Research & Development/Bid & Proposal Costs .......................................................1-52

Unallowable costs in G&A ..............................................................................................................1-53

Charts ...............................................................................................................................................................1-55

Figures. .............................................................................................................................................................1-61

Chapter 2 Government Procurement Process, Information Gathering and MarketingGovernment Procurement Process .....................................................................................................................2-1

Determining the agency’s need ...................................................................................................................2-2

Acquisition plan ..........................................................................................................................................2-2

Developing the request for proposals .........................................................................................................2-2

The initial steps of issuing the RFPs ..........................................................................................................2-3

Source selection and evaluation process .....................................................................................................2-3

Information Gathering .......................................................................................................................................2-4

FOIA as an information gathering tool .......................................................................................................2-5

Winning Proposals and Pricing/Cost Strategies: A Guide for the Federal Contractor vii

Information gathering steps to take ........................................................................................................2-6

Stay consistent ........................................................................................................................................2-6

Get to know the key personnel ....................................................................................................................2-6

Invite key personnel to get to know your company ...............................................................................2-7

Marketing ...........................................................................................................................................................2-8

Unsolicited proposals ..................................................................................................................................2-9

Lobbying ...................................................................................................................................................2-10

Chapter 3 Preparing Your Company for Government Business

Solicitations ........................................................................................................................................................3-2

Sealed bids ..................................................................................................................................................3-2

Request for Proposals/Quotations ...............................................................................................................3-3

Full and open competition ..........................................................................................................................3-4

Small business classifications ................................................................................................................3-4

Limitations .............................................................................................................................................3-5

Before the RFP is issued ....................................................................................................................................3-5

Initial Review of RFP .........................................................................................................................................3-6

Now is the time to ask questions .................................................................................................................3-7

Understanding the contract .........................................................................................................................3-8

The basic parts of the contract ...............................................................................................................3-8

The ‘changes’ clause ..............................................................................................................................3-8

Assessing contractor risks .........................................................................................................................3-10

Special contract clauses........................................................................................................................3-11

Understanding the Scope of Work ............................................................................................................3-12

Developing Statements of Work ...............................................................................................................3-13

Proposals ..............................................................................................................................................3-13

Making the proposal process easier .....................................................................................................3-14

Pricing and estimating strategies ..............................................................................................................3-14

What is certified cost or pricing data? ..................................................................................................3-15

Commercial pricing .............................................................................................................................3-15

Indirect/Overhead Rates ............................................................................................................................3-17

The role of the entity’s business teams and leadership ........................................................................3-19

Now May Be the Time to Protest .....................................................................................................................3-20

Setting milestones .....................................................................................................................................3-20

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The Bid/No-Bid Decision ................................................................................................................................3-20

Market research .........................................................................................................................................3-21

Historical data ...........................................................................................................................................3-21

Know the competition ...............................................................................................................................3-21

Business strategy .......................................................................................................................................3-21

Chapter 4 The Proposal Development Process

The Initial Process ..............................................................................................................................................4-1

Establishing the winning team ....................................................................................................................4-1

Program manager ...................................................................................................................................4-2

Proposal manager ...................................................................................................................................4-2

Technical manager .................................................................................................................................4-3

Other team members ..............................................................................................................................4-3

Evaluating for potential organizational conflict of interest ........................................................................4-3

Underlying principles of OCI.................................................................................................................4-3

What to look for during the assessment .................................................................................................4-4

What is systems engineering? ................................................................................................................4-5

Additional assessment considerations ....................................................................................................4-5

OCI waivers ...........................................................................................................................................4-5

Mitigation plans .....................................................................................................................................4-5

Evaluating personal conflicts of interest .....................................................................................................4-6

Underlying principles of personal conflicts of interest .........................................................................4-6

What to look for during the assessment .................................................................................................4-6

Mitigation plans .....................................................................................................................................4-7

The ‘kick-off’. ............................................................................................................................................4-7

Establishing procedures for the proposal team ...........................................................................................4-8

Establishing a format for the proposal response .........................................................................................4-8

Developing the compliance checklist. ........................................................................................................4-9

The proposal/contract work breakdown structure .....................................................................................4-10

The Continuing Process ...................................................................................................................................4-11

Developing the risk analysis .....................................................................................................................4-11

Subcontracting decisions ..........................................................................................................................4-11

Teaming/joint ventures ..............................................................................................................................4-13

Make or buy determination .......................................................................................................................4-16

Winning Proposals and Pricing/Cost Strategies: A Guide for the Federal Contractor ix

Chapter 5 Proposal Themes and Content — Telling Your Story

Proposal Themes ................................................................................................................................................5-1

Discriminators .............................................................................................................................................5-2

Key issues ...................................................................................................................................................5-2

Proposal themes/strengths/strategies ..........................................................................................................5-3

Customer needs and constraints ..................................................................................................................5-3

Proposal Content ................................................................................................................................................5-4

Technical volume ........................................................................................................................................5-5

Management volume ...................................................................................................................................5-5

Cost or pricing volume ................................................................................................................................5-6

Understanding the factors of costs .........................................................................................................5-6

Past performance .......................................................................................................................................5-11

Executive summaries ................................................................................................................................5-12

Letters of commitment/agreements ...........................................................................................................5-12

Marketing materials ..................................................................................................................................5-12

Résumés, certifications, permits and licenses ...........................................................................................5-13

Title page ...................................................................................................................................................5-13

Taking exception to terms and conditions.................................................................................................5-13

Chapter 6 Proposal Organization, Preparation and Delivery

Proposal Organization .......................................................................................................................................6-1

Organizing the response ..............................................................................................................................6-1

Page limitations ......................................................................................................................................6-1

Formats and page sizes...........................................................................................................................6-2

Compliance matrix .................................................................................................................................6-2

Proposal volume consistency ......................................................................................................................6-2

Graphics/artwork/photographs ....................................................................................................................6-2

Production and binding ...............................................................................................................................6-3

Quality control ............................................................................................................................................6-3

Protecting proprietary/business confidential data .......................................................................................6-4

Final Proposal Preparation .................................................................................................................................6-4

Management review and approval ..............................................................................................................6-4

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Red Team reviews .......................................................................................................................................6-4

Legal analysis and protest prevention .........................................................................................................6-5

Proposal Delivery ...............................................................................................................................................6-5

Chapter 7 The Next Steps and Follow Up

Next Steps ..........................................................................................................................................................7-1

Competitive range determination ................................................................................................................7-1

Award on initial proposals ..........................................................................................................................7-2

Discussions ................................................................................................................................................7-2

Oral presentations .......................................................................................................................................7-3

Review the solicitation ...........................................................................................................................7-3

Ask about topics to be covered ..............................................................................................................7-4

Ask if presentation will be used solely for evaluation or is it part of the offer ......................................7-4

Mark all briefing materials with a proprietary legend ...........................................................................7-4

Avoid problems ......................................................................................................................................7-5

Final proposal revision ................................................................................................................................7-5

Proposal party .............................................................................................................................................7-6

Pre-award survey ........................................................................................................................................7-6

Award ..........................................................................................................................................................7-6

The Follow-up ....................................................................................................................................................7-7

Debriefing — Awardee ................................................................................................................................7-7

Debriefing — disappointed bidder/offeror ..................................................................................................7-7

Sample debriefing questions ..................................................................................................................7-9

What to do after the briefing ................................................................................................................7-10

Protest — file or walk away? ....................................................................................................................7-11

‘Lessons learned’ analysis .........................................................................................................................7-11

Preparing for the next time .......................................................................................................................7-12

Chapter 8 Government Audits

Audit Considerations/Risks ................................................................................................................................8-1

Primary audit agencies ................................................................................................................................8-1

Entrance and exit conferences ....................................................................................................................8-3

Winning Proposals and Pricing/Cost Strategies: A Guide for the Federal Contractor xi

Pre-award audits/survey ..............................................................................................................................8-3

Post-award audits ........................................................................................................................................8-3

Managing Audits ................................................................................................................................................8-4

Managing DCAA Audits (10 Keys to Success) .................................................................................................8-4

What is a successful DCAA audit? .............................................................................................................8-4

The 10 recommendations ............................................................................................................................8-5

Recommendation 1: Insist on an entrance conference ...........................................................................8-5

Recommendation 2: Appoint an internal liaison ....................................................................................8-6

Recommendation 3: Assemble the management team ...........................................................................8-7

Recommendation 4: Establish an accurate, accessible record-keeping system .....................................8-7

Recommendation 5: Be responsive ........................................................................................................8-8

Recommendation 6: Maintain a detailed log .........................................................................................8-9

Recommendation 7: Do not allow the audit to exceed the agreed scope ...............................................8-9

Recommendation 8: Insist on a list of required interviews ..................................................................8-10

Recommendation 9: Review the preliminary findings at the function/department level .....................8-11

Recommendation 10: Insist on an exit conference at the company level ............................................8-11

Conclusion: 10 steps can make for a successful audit process ...........................................................8-12

Conclusion

Resources: ExhibitsExhibit A: Standard Form 26 ............................................................................................................................R-3

Exhibit B: CPIF Contract — Cost Over- and Under-Run Implication .............................................................R-4

Exhibit C: Key Clauses .....................................................................................................................................R-5

Exhibit D: Truth in Negotiations Act ..............................................................................................................R-49

Exhibit E: Cost Accounting Standards ............................................................................................................R-65

Exhibit F: Helpful Web Sites ..........................................................................................................................R-75

Exhibit G: Standard FOIA Letter ....................................................................................................................R-82

Exhibit H: Business Opportunity Evaluation Form ........................................................................................R-83

Exhibit I: Sample Survey Form.......................................................................................................................R-85

Exhibit J: GAO Protest Timetable...................................................................................................................R-87

Exhibit K: Proposal Preparation Schedule ......................................................................................................R-90

Exhibit L: Review Team Response Sheet .......................................................................................................R-93

Exhibit M: Proposal Assignment Chart.........................................................................................................R-102

Exhibit N: Solicitation Compliance Checklist ..............................................................................................R-103

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Exhibit O: Sample Due Diligence Checklist ................................................................................................. R-110

Exhibit P: Proposal Theme Summary Sheet ................................................................................................. R-113

Exhibit Q: Pricing Schedule Example........................................................................................................... R-114

Exhibit R ....................................................................................................................................................... R-116

Standard Form 1403 ............................................................................................................................... R-116

Standard Form 1404 ............................................................................................................................... R-118

Standard Form 1405 ............................................................................................................................... R-119

Standard Form 1406 ...............................................................................................................................R-123

Standard Form 1407 ...............................................................................................................................R-125

Standard Form 1408 ...............................................................................................................................R-128

Exhibit S: Sample Debriefing Request ..........................................................................................................R-130

Index